The Bank of England's Monetary Policy Committee has voted to raise the interest rate to 4.75%.
The decision to increase rates will come as a surprise to many who had expected the MPC to hold interest rates for a 12th consecutive month although there had also been a growing sense in some quarters that a rise in the base rate was imminent.
According to the most recent minutes from the last meeting of the MPC the committee voted unanimously to hold interest rates at their current level. But a steep rise in house price inflation and a downturn in activity in the manufacturing industry along with inflation creeping slightly beyond the Bank’s target of 2% - at 2.5% - may have played a role in the decision to increase rates today.
Reacting to the decision Barry Naisbitt, chief economist at Abbey, says the decision reflects a changing perception within the MPC about the balance of risks on inflation, coming from new economic data.
"While the decision to raise rates today was something of a surprise given last month's unanimous vote to hold, it reflects economic news and, presumably, a revised outlook for inflation. We will find out more details of the latter in the Inflation Report next Wednesday. With economic growth again at 0.8% in the second quarter and inflation now at 2.5%, I view the increase as an adjustment rather than the start of a new phase of raising rates," he says.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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